Voltas is an established player in the Middle East market which also forms a large part of the company’s international order book. Since most government’s in the Middle East rely heavily on oil revenues for infrastructure development, the sharp drop in oil price in second half of CY08 has affected the infrastructure creation activity.
This is reflected in slowdown in order backlog in FY09-10. At the end of Q1
FY10, overseas order backlog is down 26% y-o-y to Rs34.1 billion.
Voltas has indicated that although the company has not booked any large order in recent months, but the enquiries are encouraging. The company is expecting some prestigious orders from the healthcare segment. The company expects that order book would be in a much better position by the end of the second quarter.
Also, the company is targeting some large orders in the second half of this fiscal. Voltas has indicated that Education is emerging as a major priority area for the Abu Dhabi government and should create significant opportunities for air-conditioning.
Voltas is looking at the new markets of Saudi Arabia, Kuwait and South Africa. The company has plans to take small orders in Saudi and later on graduate to larger ones and has bid for orders worth Rs35 billion in Abu Dhabi and Qatar.
We recommend you ACCUMULATE the stock as the economic outlook has improved across the globe, enquiries have started trickling in from the Middle East. Even on the domestic front, outlook has improved with order backlog increasing 25% y-o-y.
Target price has been raised to Rs165 from Rs140 as the annual report highlights continued strong cash generation that will be able to maintain its lean working capital structure. Cash surplus has increased from Rs2.7 billion to Rs40 billion in FY09.